Any couple has a constitutional right to be married in any state and to receive all benefits of marriage in that state, the United States Supreme Court has held in a series of decisions. These decisions — primarily United States vs. Windsor and Obergefell vs. Hodges — effectively put financial planning for same-sex married couples on the same legal footing as financial planning for dual-sex married couples. Equality in financial treatment is mandated for any couple with a marriage license issued in any U.S. state, or in any recognized foreign jurisdiction. As a result, all married couples should have the same rights and responsibilities in state and federal tax filing, inheritance and property rights, insurance, and Social Security and retirement benefits. Here is a review that can help you understand the current circumstances for your spouse and you.

Courts Are Drawing the Big Picture

Acting under the combined weight of the high court decisions, the federal government now generally recognizes all valid marriages licenses for all federal income tax, estate tax, retirement, Social Security, and healthcare purposes. Under the same impetus, all U.S. states are required to give equal treatment to all couples with valid marriage licenses and to issue marriage licenses to all couples who request them. They are also generally required to give all marriages equal treatment under trust, estate, property, and tax rules. However, keep in mind that court decisions generally set policy but do not normally address all of the specifics of implementation. Many details may still need to be worked out. Some of the issues being raised are sparking further state and federal court procedures, so be sure to consult your legal advisors about your status under your state’s laws and practices.

The Income Tax and Married Couples

At the federal level, all couples with valid marriage licenses from any jurisdiction are considered married for federal income tax purposes and are expected to file under the “married” tax status no matter where they live. Married couples can file either jointly or separately, but not singly or as heads of households.

For state income tax purposes, the principles of equal treatment apply but implementation practices may be in flux. You should consult with a qualified tax advisor to determine your local filing obligations.

A note about state tax changes: When the U.S. Internal Revenue Service officially implemented marriage equality rules starting in the 2013 tax year, it allowed couples who’d previously been denied favored tax treatment to refile certain federal returns retroactively in order to take advantage of potentially lower tax rates and greater tax deductions. State rules about amending tax returns retroactively vary widely, so you should confirm your state’s practices. Also keep in mind that any change that lowers your state tax obligations retroactively would require you to amend your federal tax returns for that year, potentially increasing your federal tax obligations. You may wish to weigh any potential state tax savings against the potential cost and complexity of the required federal filings.

Social Security and Retirement

Marital status plays no role in determining Social Security and “regular” Medicare tax withholding. The 0.9% Additional Medicare Tax may be withheld from any individual whose covered wages exceed $200,000 per year. However, the eventual liability for the 0.9% additional tax is determined at the time of tax filing, when the tax is applied to individuals filing singly whose income generally exceeds $200,000 and couples filing jointly whose income generally exceeds $250,000. Additional calculations may be needed to determine final tax liability for single or married taxpayers whose income is divided between wages and self-employment income.

As for benefits, Social Security has promised to provide full spousal benefits to all couples with recognized marriage licenses. However, administrative procedures for assuring equal treatment in marriage benefits were not yet published as of October 2015.

Employer-sponsored retirement plans and IRAs are governed by different laws. As a result, all married couples are entitled to the same rights for joint and survivor annuities, qualified domestic relations orders, beneficiary designations, and required minimum distributions, regardless of where they, their employers, or their financial institutions are based.

Joint and community property rights, health care proxies, spousal trust privileges, powers of attorney, living wills, and other nonmonetary elements of your financial strategy rest on combinations of state and federal law. Couples should seek qualified advice to determine how their arrangements fit with current practices in the state where they live.

Required Attribution

1-513274
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

By default, single women have always taken responsibility for managing household wealth, but the latest in a series of ongoing studies into the attitudes and actions of women around financial topics found that an ever-increasing percentage of married women are taking charge of financial and retirement planning for their families.

Prudential’s “Financial Experience & Behaviors Among Women 2014-2015” — which surveyed more than 1,400 women aged 25 to 68 across all income levels and key ethnic groups — found that currently 27% of married women are in charge of household financial planning — up from 14% in 2006. Women also continue to contribute heavily to household income, with 44% reporting that they are the primary breadwinners for their families. This number has fluctuated in recent years, likely reflecting the evolving state of the economy.

Lingering Confidence Issues

Even as the economy improves and women step up their involvement in financial decision-making and goal-setting, their confidence in their ability to meet these challenges has remained virtually unchanged over the past 20 years. For instance, this year 75% of women said having enough money to live comfortably in retirement was “very important,” but just 14% were “very confident” they would achieve that goal. Similarly, 66% of women said being prepared for rising health care costs was a very important financial goal, but just 9% felt confident in their ability to do so.

Fewer Seeking Professional Help

Despite these realities, the number of women who seek the advice of financial professionals has declined dramatically in recent years. Just under a third (31%) of women interviewed for this study are currently working with a financial advisor — that’s down from 48% in 2008. With retirement fast-approaching Boomer women are most likely to use a financial professional (45%) followed by Generation Xers (31%) and Millennials (15%).

Overall, more than half (53%) of those who use advisors feel on track or even ahead of their plans with regard to saving for retirement, compared with just 23% of women who do not seek professional help.

The trend away from using advisors may be fueled, in part, by advances in technology that make financial information readily available 24/7 via smartphones, tablets, and PCs. Social media is also becoming a go-to resource for women seeking information about financial products and services. But the trend toward using online resources to educate and assist in decision-making is driven largely by age: 34% of Millennial women report using personal online financial management tools “sometimes” or “often” compared with just 18% of Baby Boomers.

What Women Want: Tough Advice for Advisors

When asked why they choose not to work with advisors, the primary reasons cited included not having enough assets to warrant professional guidance and high advisory firm fees. Women also voiced strong opinions about the financial services industry, indicating that firms need to simplify the process, use less jargon, put customers’ interests above their own, and exhibit ethical integrity. Among all potential customers — women and men alike — just 20% believe that financial services firms truly understand their needs.

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

As a consequence of an aging population, more working Americans are finding themselves faced with a new challenge — trying to save for retirement while sandwiched between financial obligations to children and to elderly parents.

With two children in high school, Suzanne and Matt Fletcher each work full time, and contribute regularly to retirement and college savings accounts.* When Suzanne’s mother suffered a stroke and needed full-time medical attention, her pension and Social Security payments couldn’t cover all of the cost of her increased health care needs. High medical expenses put a squeeze on the Fletchers’ combined income of $80,000.

Keep Your Eye on the Future

Understanding the importance of keeping up regular saving for retirement, the Fletchers continue to contribute to a retirement plan offered through Matt’s employer, though at a slightly lower level. They took on the additional cost of $1,800 a month for a daytime caregiver for Suzanne’s mother so that Suzanne could keep her job. This way, she will continue to accrue Social Security and pension benefits, making it less likely that she and Matt will be a burden to their own children later on.

We’re All in This Together

The Fletcher children are now playing a bigger part in funding their own educations. Money from gifts and part-time jobs goes directly into their college savings accounts. They have also taken charge of researching grants, scholarships, and loans for financing the remaining costs. First-hand experience in planning for financial goals will teach a positive lesson to the Fletcher children — the value of saving and investing for the future.

Source/Disclaimer:

*The investor profile is hypothetical.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

Layoffs are a fact of corporate life as companies grapple with economic cycles and global competition. If you get caught in a corporate downsizing and you are not immediately moving to a new employer, you generally have three options for your retirement plan assets:

Leave your money in the existing plan.

Take a cash or “lump sum” distribution.

Transfer the money to another qualified retirement account such as an individual retirement account (IRA).

Consider the merits of each option.

Option #1: Stay Put

You may be able to leave your savings in your existing plan if your account balance is more than $5,000.1 By doing so, you’ll continue to enjoy tax-deferred or tax-free compounding potential and receive regular account statements and performance reports. Although you will no longer be allowed to contribute to the plan, you will still have control over how your money is invested among the plan’s investment selections.

Option #2: Cash Out

You may elect to have your money paid to you in one lump sum or in installments over a set number of years. A lump-sum approach has a number of drawbacks, including a 20% withholding on the pre-tax contributions and the earnings portion of the eligible rollover distribution (to help cover your ordinary income tax liability) and a 10% additional tax on early withdrawals if you separate from service before age 59½ (55 in certain circumstances). Depending on your tax bracket and state of residence, you may be liable for additional taxes and penalties. An installment approach, whereby distributions are made in substantially equal payments over the participant’s or the participant’s and spouse’s life expectancy may not be subject to additional taxes. But this is a fairly complex option that may require the assistance of a financial advisor.

Option #3: Roll Over

You can move your retirement plan money into another qualified account, such as an IRA, using a “direct rollover” or an “indirect rollover.” Note that traditional plan balances can only be rolled into traditional IRAs and new Roth-style plan balances can only be rolled into Roth IRAs. With a direct rollover, the money goes straight from your former employer’s retirement plan to your IRA without you ever touching it.

The advantages of a direct rollover include simplicity and continued tax deferral on the full amount of your plan savings. IRAs may also afford more investment choices than many employer-sponsored plans. In an indirect rollover, you take a cash distribution, less 20% withholding, but must redeposit your qualified plan assets into an IRA within 60 days of withdrawal to avoid paying taxes and penalties. With this approach, however, you’d have to make up the 20% withholding out of your own pocket when you invest the money in the new IRA, or else the withheld amount would be considered a distribution, so ordinary income tax and the 10% additional tax would apply. And in either case, an IRA may be subject to higher fees and expenses than the employer-sponsored plan it replaced.

Consider Other Short-Term Funding Sources

During times of economic hardship, it may be tempting to take money intended for future needs and use it to supplement a temporary income shortfall. But remember that any funds you take out today will ultimately reduce your retirement nest egg tomorrow.

Before choosing a cash distribution from a retirement plan, consider other potential sources to meet your current income needs. For example, savings accounts and money market accounts are easily liquidated. With short-term interest rates at historically low levels, the opportunity cost for using these funds is relatively low.

Source/Disclaimer:

1In general, an employer should roll assets exceeding $1,000 into an IRA in your name, unless otherwise directed by you.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

Discussing the transfer of wealth from parents to children can be uncomfortable for both parties. Yet by introducing children to the wealth management process from a young age, affluent families may be able to reduce family tensions later in life and help ensure that the planning tradition passes intact to future generations.

Closing the Communication Gap

Opening the dialogue about wealth transfer is a complicated, personal decision that is influenced largely by how wealth holders themselves have been brought up to view money and the responsibilities that come with it. For instance, some individuals may fear that discussing wealth with their children will lead to feelings of expectation and entitlement. Others may simply prefer to control all money issues themselves. Still others with young children may be uncertain about their future wealth and reluctant to discuss it until their children are older and have proven how well — or poorly — they handle money.

Embracing the Planning Process

One strategy that may help families overcome planning challenges is to think about wealth planning not as a one-time exercise, but as a process that you live with every day — and that you integrate into children’s lives at a very early age.

For instance, when children are young, you can teach them to divide their allowances into three portions — one for saving, one for spending, and one for giving. Consider matching their giving and saving money and set an example by handling your own money in a similar fashion.

Once children become teenagers, allow them to make their own decisions about how they spend their money, and as difficult as it may be, allow them to live with the consequences of their decisions. As children make the passage to adulthood, gradually involve them in the family business as well as the family’s charitable giving activities.

Creating a Win-Win Solution

Certainly, the more wealth a family has, the more important it becomes to make managing wealth a process, especially if wealth has existed for multiple generations and there are instruments such as family foundations in place. In this way, early involvement helps families prepare heirs for their future role as stewards of the family wealth. It also helps develop the skills and experience needed to manage a family business or wealth plan, while ensuring that such knowledge is shared and passes successfully to the next generation.

Working With Professionals

Working together with your team of planning professionals — your financial advisor and estate and/or tax planner — you will be able to assess your current situation and develop first steps toward implementing a plan of action.

This communication is not intended to be tax or legal advice and should not be treated as such. Each individual’s situation is different. You should contact your tax and/or legal professional to discuss your personal situation.

Required Attribution

1-397472
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

]]>How — and When — Do I Sign Up for Medicare?http://www.romerowm.com/2017/07/how-and-when-do-i-sign-up-for-medicare/
Tue, 11 Jul 2017 17:33:33 +0000http://www.romerowm.com/?p=5450

Santa Ana, CA – July 11, 2017

Medicare Part A and Part B

If you are already receiving Social Security benefits before you turn age 65, no sign-up is required for Medicare Part A or Part B. Part A is basic hospital insurance; Part B helps to pay for medically necessary services such as doctor visits or outpatient care. You automatically become eligible on the first day of the month you turn age 65. In most instances, your Medicare card arrives in the mail three months before your 65th birthday. Premiums for Part B (there is no premium for Part A) will be deducted automatically from your Social Security check.

If you are not receiving Social Security benefits, you will be required to sign up for Part A and Part B. Contact your local Social Security office three months in advance of your 65th birthday to start the process.

When You Wait

If you receive medical insurance from another provider (such as your employer or a partner’s employer), you can wait to sign up for Medicare. To avoid paying a higher premium, you will be required to enroll during the eight-month period that begins during the month your employment ends or the group health coverage ends, whichever is first.

If you did not sign up for Part B when you first became eligible and you do not have employer-based coverage, there may be a late enrollment penalty when you do sign up.

Medicare Part C and Part D

Both Medicare Part C, also known as Medicare Advantage, and Part D, which is prescription drug coverage, are provided by private insurers whose plans are approved by Medicare. To learn about plans that may be available to you, log on to www.medicare.gov and click on the “Plan Choices” link on the left.

Medicare Advantage/Medicare Part C frequently provides many services that are also available through Part A and Part B (Original Medicare). You may want to contact several providers of Medicare Part C to learn how their offerings compare with Original Medicare. Certain plans include prescription drug coverage, which means you may not have to purchase Medicare Part D separately.

When to Sign Up

You can sign up for Medicare Part C when you first become eligible for Medicare. You can also sign up between January 1 and March 31 or between November 15 and December 31 each year. If you sign up at the beginning of the year, you can’t join or switch to a plan with prescription drug coverage unless you already had Medicare Part D. If you sign up toward the end of the year, your coverage will begin January 1 of the following year.

You can join Medicare Part D when you initially become eligible for Medicare or between November 15 and December 31 of each calendar year. You typically can join Part C or Part D by filling out a paper application, calling the plan, or enrolling online. Even if you don’t take many prescriptions, you may want to consider signing up for Part D as soon as you become eligible. If you wait and try to sign up during a subsequent enrollment period, you may be charged a late enrollment penalty and be forced to pay higher premiums.

Medicare is an important benefit for many Americans, but there are rules that beneficiaries need to follow. It may be in your best interest to familiarize yourself with these rules to make sure that you capitalize on the benefits available to you.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

With growing uncertainty about the future of Social Security funding, the Social Security Administration (SSA) suspended most mailings of its annual statements. Previously, the SSA had sent all working Americans an annual statement about three months before their birthday. The statement included one’s lifetime earnings record, as well as estimates of retirement, disability, and family survivor benefits. It also reported earned credits, which indicated if one would qualify for Medicare at age 65.

The agency is working on an online download option. In the interim, you can access the same information online at SSA.gov, using one of the following methods:

The Retirement Estimator gives estimates of your retirement monthly benefit, based on your actual Social Security earnings record. The calculator shows early (age 62), full (ages 65-67 depending upon your year of birth), and delayed (age 70). The Retirement Estimator also lets you create additional “what if” retirement scenarios based on current law.

If you do not have an earnings record with Social Security or cannot access it, there are also other benefit calculatorsthat do not tie into your earnings record. The calculators will show your retirement benefits as well as disability and survivor benefit amounts if you should become disabled or die.

Social Security should be a part of your retirement income planning. Make a point of checking out your estimated benefits at least annually so you know how much to expect — and how much you’ll need to provide from your own savings.

Also, remember that Social Security benefits don’t automatically increase every year. They typically are raised to reflect an increase in inflation.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

You’ve worked long and hard to accumulate the assets that you are using to help finance your retirement. Now, it’s time to start drawing down those assets. Exactly how you liquidate your assets will affect your tax and impact how long those assets last, so it pays to plan a withdrawal strategy that is efficient and maximizes the benefits of different types of investments.

The first step in planning your withdrawal strategy is to make a precise inventory of all the assets you have in your portfolio, paying particular attention to distinguish between taxable accounts, such as ordinary bank or brokerage accounts, and tax-deferred accounts such as 401(k), 403(b) and 457 plans, and IRAs. From this inventory, you can estimate how much cash you will receive from dividends, interest payments, redemptions, and distributions in the coming year. You can also assess how much you will need to hold in reserve in order to meet the associated federal and state tax obligations.

If your total net cash flow from the assets in your taxable accounts is strong enough to meet your budgeted cash needs for the year, you may consider yourself to be fortunate. You need not weigh the transaction costs of different asset sale strategies or consider the added income tax effects of withdrawing assets from employer-sponsored plans and IRAs. But if you do need to liquidate assets in order to meet your cash flow targets, then you should consider the plusses and minuses of each withdrawal strategy as outlined in the following savings withdrawal hierarchy.

As you consider these options, keep in mind that no single order can be right for every person and every situation. Among the additional issues you should consider when designing your withdrawal strategy are the management of portfolio risk, your tax bracket, and the cost basis of the investments. With that in mind, below is a high-level summary of guidelines for creating an appropriate strategy. Remember, this is a conceptual ranking. Your circumstances may require a different sequence, so be sure to obtain relevant financial advice before taking any action. Note, too, that estate tax considerations might have an impact on withdrawal priorities.

Meet the rules for Required Minimum Distributions (RMDs). Owners of traditional IRAs and participants in 401(k), 403(b), and 457 plans must follow IRS schedules for the size and timing of their RMDs (see below). Those who fail to do so face a penalty tax equal to half of any required distribution that has not been taken by the applicable deadline.

Sell losing positions in taxable accounts. If you have an investment that is worth less now than when you bought it, you may be able to create a tax deduction by selling that investment. This deduction can be used to offset any investment gains you realize. It can also be used to offset up to $3,000 in ordinary income ($1,500 for married individuals who file separate tax returns). Losses in excess of the limits can usually be carried forward for use in future years.

Liquidate assets in taxable accounts that will generate neither capital gains nor losses. As you consider which assets to sell, keep your target asset allocation in mind. You may be able sell assets from a class that is currently overweighted in your portfolio. By focusing on reducing the overweighted class to restore balance, you can minimize net transaction costs.

Realize gains from taxable accounts or withdraw assets from tax-deferred accounts to which nondeductible contributions have been made, such as after-tax contributions to a 401(k) plan. Which accounts to tap first within this category will depend on a number of factors, such as the cost basis relative to market value of the accounts to be liquidated and the tax characteristics of the assets in the taxable account. When liquidating taxable account assets, liquidate the holdings with long-term capital gains before those with short-term gains, and liquidate assets with the least unrealized gain first.

Take additional distributions from tax-favored accounts. RMD rules, state tax treatment, and other features and characteristics of the different IRAs and employer-sponsored plans may make some accounts better candidates for earlier withdrawals. For instance, withdrawals from a traditional IRA would usually precede withdrawals from a Roth IRA.

Required Minimum Distributions (RMDs)

For traditional IRAs and employer-sponsored retirement savings plans, individuals must begin taking required minimum distributions no later than April 1 following the year in which they turn 70½. RMDs from a 401(k) can be delayed until actual retirement if the plan participant continues to be employed by the plan sponsor and he or she does not own more than 5% of the company. The size of an RMD is determined by the account owner’s age. An account owner with a spousal beneficiary who is more than 10 years younger can base required minimum distributions on their joint life expectancy.

Estimating the Required Minimum Distribution

This is the most broadly applicable required minimum distribution table — the Uniform Lifetime Table for unmarried owners, married owners whose spouses are not more than 10 years younger, and married owners whose spouses are not the sole beneficiaries of their accounts. Other tables apply in other situations.

Age

70

75

80

85

90

95

100

105

Actuarially projected life expectancy (in years)

27.4

22.9

18.7

14.8

11.4

8.6

6.3

4.5

RMD (% of assets)

3.6%

4.4%

5.3%

6.8%

8.8%

11.6%

15.9%

22.2%

Source: The Internal Revenue Service.

A Potential Tax Benefit for Company Stock Held in a Retirement Plan

For individuals who hold company stock in their 401(k) or other qualified retirement plan, the IRS offers certain tax advantages when withdrawing company stock from the plan. Rather than paying ordinary income tax on the entire amount of the withdrawal, you may elect to pay it on the original cost basis of the stock, assuming it was paid for in pre-tax dollars, then pay capital gains tax, usually at a lower rate, on the net unrealized appreciation when you eventually sell the shares.

Keep in mind that the IRS has exacting requirements for exploiting all of the tax management strategies discussed above and that tax laws are always subject to change. You should review your cash management plans with your tax and investment advisors before taking any specific action.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

]]>I’m Changing Jobs. What Should I Do With the Money in My Plan?http://www.romerowm.com/2017/06/im-changing-jobs-what-should-i-do-with-the-money-in-my-plan/
Tue, 20 Jun 2017 17:20:27 +0000http://www.romerowm.com/?p=5437Santa Ana, CA – June 20, 2017

Changing jobs is an important decision — one that many of us are making more often. Once you’ve decided to switch jobs, your next move is to determine what to do with the money in your former employer’s retirement plan.

Four Common Options

Generally, you have four options for handling the money in your account:

Option #1. Keep the Money in Your Former Employer’s Plan

If your former employer permits, leaving your money where it is may be an attractive option because it allows you to continue enjoying the benefits of tax-deferred compounding. If you are happy with the plan’s investment options, this could be a good choice. On the downside, there may be special conditions or fees associated with your continued participation, and you may have withdrawal restrictions in the future.

Option #2. Roll the Money Into Your New Employer’s Plan

This option also has its advantages — continued tax-deferred growth of your investment and the convenience of having all of your retirement assets in one place. But because every employer has its own rules governing rollover money, before you choose this option, review your new employer’s plan and possible eligibility restrictions carefully.

Option #3. Take the Money in Cash

While this option may seem appealing because it gives you immediate access to your money, Uncle Sam is the real winner here. Cash distributions are subject to a mandatory 20% federal withholding in addition to regular income tax. Furthermore, if you are under age 59½, your distribution would also be subject to a 10% additional federal tax. Finally, if state or local taxes apply, they could claim an even bigger portion of your account.

Option #4. Roll the Money Directly Into an IRA

This final option allows you to roll all or a portion of your money into an IRA. To avoid withholding taxes and potential penalties, arrange for a direct rollover of the entire amount into an IRA. An IRA offers the same benefits of tax-deferred investing for retirement and typically provides a wider range of investment options to choose from. However, additional fees or commissions may apply.

The money you accumulate through an employer’s plan may become a primary source of income after you retire, so how you manage it today could have a big effect on your financial situation in the future.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

The old saying “knowledge is power” applies to many situations in life, including retirement planning. The more you know about the benefits your plan offers, the more likely you’ll be to make the most of them and come out ahead financially when it’s time to retire. Here are some questions to test your knowledge about your plan.

How much can I contribute?

The maximum contribution permitted by the IRS for 2015 is $18,000, although your plan may impose lower limits. Further, if you are age 50 or older, you may be able to make an additional $6,000 “catch-up” contribution as long as you first contribute the annual maximum. Check with your benefits representative to find out how much you can save.

What investments are available to me?

Recent research indicated that a third of retirement plan participants were “not at all familiar” or “not that familiar” with the investment options offered by their employer’s plan.1 The study went on to reveal that individuals who were familiar with their retirement plan investments were nearly twice as likely to save 10% or more of their annual income, compared with those who report having little-to-no knowledge about such investments.1

Understanding your investment options is essential when building a portfolio that matches your risk tolerance and time horizon. Generally speaking, the shorter your time horizon, the more conservative you may want your investments to be, while a longer time horizon may enable you to take on slightly more risk.

What are the tax benefits?

Contributing to your employer’s retirement plan offers two significant tax benefits. First, since your contributions are taken out of your paycheck before taxes are withheld, you get the up-front benefit of lowering your current taxable income. Plus, since you don’t pay taxes on the money you contribute or on any investment earnings until you make withdrawals, more goes toward building your retirement nest egg.2

Will my employer make contributions to my account on my behalf?

Many companies try to encourage participation in their retirement plans by matching workers’ contributions up to a certain percentage of each worker’s salary. Defined contribution benchmarking studies indicate that the average company contribution in 401(k) plans is now 2.7% of pay.3 The most common type of fixed match reported by 40% of plan sponsors is $.50 per $1.00 up to a specified percentage of pay (commonly 6%).3 For their part, employees interviewed recently cited “taking advantage of the company match” as the top reason for participating in their company’s retirement plan.4

How long before the money in the plan is mine?

Any money you contribute to your retirement account is yours, period. However, any matching contributions made by your employer may be on a “vesting schedule,” where your percentage of ownership increases based on years of service. Current research indicates that 40.6% of employers now offer immediate vesting of matching contributions.3 Because vesting schedules vary from plan to plan, be sure you know the specifics of yours.

Your benefits representative can help you answer these and other questions about your employer-sponsored plan. Being “in the know” may help you avoid missteps and make as much progress as possible on the road to retirement.

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.